GE Healthcare Spinoff Prompts Split Views on M&A Effect

The planned spinoff of General Electric Co.'s (GE) healthcare unit could affect the consolidation landscape in the tools and medical devices sector, according to Evercore ISI analysts.

Boston-based GE on Tuesday, June 26, unveiled plans to spin off the unit, which provides medical imaging, monitoring, biomanufacturing and cell therapy technology.

The announcement could be "disappointing" to the likes of Danaher Corp. (DHR) and Thermo Fisher Scientific Inc. (TMO) , "who emerged and flourished under GE's watch and according to media may have contemplated an acquisition of a portion of the assets now being sold / spun (namely within the life sciences portfolio)," analysts Ross J. Muken and Vijay Kumar wrote in a note Tuesday.

"So while the healthcare investment community gains another sizable new asset (Siemens is also in process of unlocking with Healthineers), a major M&A chip is now off the table most likely," they added.

Representatives for Danaher and Thermo Fisher did not immediately return a request for comment. Muken declined further comment on the analysts' note.

The Wall Street Journal reported in April that Danaher recently had approached GE about a potential deal for GE Healthcare's life sciences business and that GE was not pursuing a transaction.

GE's healthcare spinoff plan was part of a broader announcement Tuesday on the results of the conglomerate's strategic review. GE, which will focus on its power, aviation and renewable-energy businesses, also said it plans to sell its 62.5% stake in oil services group Baker Hughes (BHGE) .

GE Healthcare generated more than $19 billion of revenue in 2017. The unit's president and CEO, Kieran Murphy, will continue to lead the business after the spinoff. Murphy took the helm last year, succeeding John Flannery, who became GE's CEO.

The unit's peers include Siemens Healthineers AG, which spun out of Siemens AG earlier this year, and Philips Healthcare.

Despite Evercore's view, the spinoff of GE Healthcare could lead to more M&A in the medical technology sector over the longer term, Needham & Co. LLC analyst Mike Matson said.

The cash flow the standalone business will generate could be returned to shareholders, used to pay debt or pursue acquisitions of med tech companies, Matson said.

GE Healthcare's recent M&A activity include its purchase of bioprocessing startup Puridify Ltd. in November. Other deals include the acquisition of healthcare consulting firm Novia Strategies Inc. in July and the purchase of Asymptote Ltd., which specializes in cryochain technology for sensitive cellular therapies, in April 2017.

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